Do you listen to or purchase music online? Then you should pay close attention to the proposed merger between two of the four major record labels, which threatens to deprive consumers of the benefits of digital technology in music distribution.
The Federal Trade Commission is examining the effect of the proposed merger of Universal Music Group and EMI Music. A close look at the Universal-EMI merger reveals that it will blatantly violate antitrust laws and stifle the development of consumer-friendly digital music services.
The advent of digital music distribution has been a boon to music fans, offering consumers easier, faster, more creative ways to access their favorite music and lower manufacturing and distribution costs. But major labels are often hesitant to embrace digital music distribution, in part because of digital services’ ability to empower artists to reach fans directly or through an independent label, without needing the help of a major label.
Mergers are complex things, and that is why the FTC and Justice Department recently revised the government’s “Horizontal Merger Guidelines”: a series of screens tests used to evaluate mergers. The Universal-EMI merger flunks every test by a wide margin.
This merger creates a highly anti-competitive market by eliminating one of only four major music labels in the world. It would give Universal-EMI control of about 40 percent of every major category of recorded music sales, including current CD albums, catalog CD albums, digital albums and digital singles you and other music fans buy every day.
In technical terms, the merger results in an increase in market concentration that is five times the level the DOJ and FTC identify as a cause of concern. Simply put, a combined Universal-EMI label will have a strong incentive and increased ability to exercise market power, particularly in undermining, delaying or distorting new digital distribution business models.
In plain antitrust language, the Universal-EMI merger is “an unfair method of competition” that constitutes “an unreasonable restraint of trade” because it will “substantially lessen competition” and is “likely to enhance market power.”
The recent history of anti-competitive, anti-consumer conduct by the major labels has already raised alarms in the United States and the European Union. Add to this the long-standing view by music fans of EMI as the “maverick” of the major labels, the loss of which compounds the harmful effects of a merger and significantly increases the likelihood that the merger will cause higher prices, less access for consumers and fewer new competitors.
Universal’s claims that piracy will prevent the abuse of market power are directly refuted by evidence on consumer purchasing behavior and market research estimating how much record labels can raise prices without losing customers. A combined Universal-EMI would clearly have the market power to increase profits by increasing prices.